RE: Caplet volatility structure

Posted by Perissin Francesco on
URL: http://quantlib.414.s1.nabble.com/Caplet-volatility-structure-tp2702p2704.html

Hi Amar

you are right, the dummy Black Volatility will have no effect on the helper's NPV. Same thing holds if you are using impliedVolatility method.

What you are not able to do at the moment is to calculate the so called "caplet forward volatilities" implied by the model, since the volatility resulting from impliedVolatility method is a double, not an array. Instead, you are able to calculate a vector of "caps par volatilities".

 

Is it clearer?

Francesco 

-----Original Message-----
From: amar singh [mailto:[hidden email]]
Sent: martedì, 7 ottobre 2003 20:53
To: Perissin Francesco; '[hidden email]'
Subject: RE: [Quantlib-users] Caplet volatility structure

Francesco,

Thanks very much for your help!  I actually want to study the effect of different combinations of model parameters , on the termstructure of caplet voaltilities. I was passing a dummy value as voaltility into the constructor of Caphelper, and using the pricing engine based on the model I want to study,to calculate the npv.  

I am confused, whether the input volatility fed into the constructor of caphelper will have an effect on implied volatility calculation for a model.

 

 

Thanks again for your kind help.

 

Regards,

Amar
Perissin Francesco <[hidden email]> wrote:

 

Hi Amar,

you need to bootstrap on all caps spot starting, at first it seems that you don't need a different start date. The implementation of capHelper shows you how it's possible to obtain model prices and Black prices, but it has the limitation that it only works with a single Black volatility, while you would need a volatility vector.

You need to see if it's possible to extend this class in order to get the vol vector as input, or if you need to create a new class. If you choose to create a new class, you will consider to use, inside it, the existing VanillaCap class, after testing that this able to work with the VolatilityVector.

 

Hope it helps

Francesco

 

 

-----Original Message-----
From: amar singh [mailto:[hidden email]]
Sent: martedì, 7 ottobre 2003 06:37
To: quantlib users
Subject: [Quantlib-users] Caplet volatility structure

 

How can I get the term structure of calpet volatilities implied by a given model? ( I had used the following for cap volatility, and was wondering if startDate in cap/caphelper could somehow be changed to make it a caplet .Or is there some other better way?) :

 

Handle<Model> modelHW(new HullWhite(rhTermStructure),0.05,0.02);//to plot the curve for a=0.05 / sigma = 0.02

for (double t=1;t<30;t++)

{

 CapHelper capHelperObj(Period(t,Years),RelinkableHandle<MarketElement>(Handle<MarketElement>( new SimpleMarketElement(0.1)),indexSixMonths,rhTermStructure);  //dummy volatility of 0.1

capHelperObj.setPricingEngine(
            Handle<PricingEngine>(new AnalyticalCapFloor(modelHW)));

double npv = capHelperObj.modelprice();

double impliedVolatity = capHelperObj.impliedVolatility(npv, 1e-4,
                1000, 0.05, 0.50)*100.0;

}

 

Regards,

Amar

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